Sep
08

Freight Forwarder Fined For Helmet Export

Posted by Clif Burns at 9:10 pm on September 8, 2008
Category: BIS

Police HelmetAnother freight forwarder pays for the sins of its customers. Cargoland Air and Ocean Cargo, Inc., a Miami-based freight forwarder, recently agreed to pay to the Bureau of Industry and Security a penalty of $36,000 in connection with its attempted export of 210 riot helmets to Venezuela without a license. According to the Settlement Agreement, the riot helmets were classified as ECCN 0A979.

As is usually the case, the charging and settlement documents released by BIS provide only minimal details of the circumstances leading to the violation and nothing to explain its theory of liability by the freight forwarder. For all that can be gleaned from these documents, the exporter might have described the exported items as bicycle helmets, meaning that the freight forwarder’s liability is premised on its failure to open and inspect the contents of the shipment.

The documents released by BIS refer to the exported items as “riot helmets,” suggesting that perhaps this was the exporter’s description of the items. If that was the case, BIS was apparently expecting to the forwarder to discern from this description that the product was properly classified as ECCN 0A0979, even though that ECCN heading is “police helmets and shields; and parts, n.e.s.” and the ECCN states that the “list of items controlled is contained in the ECCN heading.” Now certainly the exporter and manufacturer of the helmets and related equipment should understand that riot helmets are police helmets, but it is not entirely clear that the freight forwarder should make this connection.

As BIS continues to expand the liability of freight forwarders, one has to wonder whether the only way for a freight forwarder to avoid liability for unlawful exports is to file a classification request for each item before it is shipped. Granted there may be circumstances in this case that demonstrated that the freight forwarder should have been aware of the proper classification of the helmets, but, if that was the case, BIS would do everyone a favor by disclosing the facts that caused the agency to reach such a conclusion.

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8 Comments »

  • Clif,

    As a freight forwarder, this case obviously caught my attention. The BIS never says whether this was a routed export transaction, but I have to suspect 15 CFR 758.4(b), which says, in part:

    “The U.S. principal party in interest is the exporter and must determine licensing authority (License, License Exception, or NLR), and obtain the appropriate license or other authorization, unless the U.S. principal party in interest obtains from the foreign principal party in interest a writing wherein the foreign principal party in interest expressly assumes responsibility for determining licensing requirements and obtaining license authority, making the U.S. agent of the foreign principal party in interest the exporter for EAR purposes.”

    If this were a routed export transaction, who else might that U.S. agent be but the freight forwarder? Yet I do not believe that most freight forwarders understand the risk they assume in routed exports, and the accountability they incur to make an appropriate license determination. And should an export license be required, the responsibility they undertake to apply for an export license, along with what all that entails. No, I suspect that they just get out the old “EAR99/NLR” rubber stamp.

    Comment by Jim Dickeson — September 8, 2008 @ 11:26 pm

  • Clif:

    Please help me on this one: Where does the 15CFR or 22CFR or 19CFR say the freight forwarder (FF) is liable for opening and inspecting the content of a shipment as you mentioned above?

    This is a duty performed by the TSA, ICE, CBP or any other acronym paid with taxpayer’s money, not the FF’s. True: the FF needs to exercise due diligence, custody the cargo at all times, ask the right questions, know the customer, identify red flags, check the denied parties list, Ofac’s, SDN’s, etc, etc. All this done, specially when proceeding with a suicidal routed transaction.

    Comment by Jairo Leon — September 9, 2008 @ 10:07 pm

  • Jairo,

    The EAR doesn’t have a direct requirement that a freight forwarder open and inspect the content of a package. What’s going on here is that many BIS regs don’t require knowledge of the violation as a prerequisite to liability. In this case, BIS charged the freight forwarder with violating 15 CFR 764.2(c), which doesn’t have a knowledge requirement. Section 764.2(e) has a knowledge requirement and is used by BIS to charge as a separate violation when knowledge is present, allowing in effect a double penalty, something I’ve argued against. A violation of 764.2 requires a violation of another part of the EAR and in general this means a violation of a relevant portion of section 736. In this case, it would be a violation of 736.2(b)(1) which makes it a violation to export an item that requires a license to a particular destination without such a license. Again, 736.2(b)(1) has no knowledge requirement.

    Because BIS provides as little information as possible in publicly-released charging and settlement documents, it is hard to be certain what the agency is up to. It is possible that in the freight forwarder cases there are particular circumstances that led it to find liabiity on the part of the freight forwarder that aren’t mentioned. But without some explanation of these circumstances by BIS, one has to assume that BIS was imposing a strict liability theory under which the freight forwarder could be liable for an illegal export even if the freight forwarder didn’t have actual knowledge of the illegality of the export.

    As a policy matter, I can understand imposing strict liability on exporters in order to encourage adequate compliance by exporters. I’m at a loss as to a policy that would impose strict liability on freight forwarders. BIS would do well to provide some explication of those circumstances in which the freight forwarder is liable for the sins of its customers.

    Comment by Clif Burns — September 9, 2008 @ 11:48 pm

  • Since it seems that the freight forwarder was fined with no mention to what happened to the exporter, I think one must also consider the possibility that the exporter provided the freight forwarder with a export documents and Shipper’s Letter of Instructions containing the correct classiication, etc. but the freight forwarder misdeclared the shipment to customs in AES - hence the freight forwader is being penilized because they should have known the correct EAR classification.

    I see this all the time. Most of the clerks doing the export entries at freight forwarding companies don’t fully understand the regulations or simply don’t have the knowledge - it is usually the few compliance people sitting somewhere at the corporate office that has that required knowledge but that position is missing at the local branch levels.

    Comment by Vito — September 10, 2008 @ 12:07 pm

  • Clif:

    I understand we don’t know the details of the indicment or the settlement. We can only guess of the circumstances. I agree with Vito: most clerks not only in exports but imports are not trained properly, are underpaid, overworked and therefore do not care about the profession, even less of the regulations.

    Thank you Clif for your excellent blog.

    Comment by Jairo Leon — September 10, 2008 @ 2:30 pm

  • Unfortunately, the marketing folks and the operations folks at most forwarders and customs brokers tend to live in different universes. Marketeers sell their services to shippers and importers on the [mis]representation that the exporter/importer can rely on the forwarder/broker for export and customs compliance, whereas the operations folks are pressed by management to process as much paper as fast as possible with the lowest investment in personnel possible. I once had to defend a customs enforcement action against a small company that wrongly classified its imported product based on a classification it obtained from the broker for the price of $100. Customs sought $7 million in back duty plus interest and penalties. Many of my export cases involved a forwarder that provided bad or no advice, and then turned around and blamed their customer. I’ve also had to try to defend forwarders who relied upon clerks with only a high school education and no formal training to interpret and apply the EAR.

    Businesses need to realize that they get what they pay for, but the marketers for forwarders and brokers need to be careful about encouraging false expectations.

    Comment by Mike Deal — September 11, 2008 @ 9:05 am

  • Just a view from a lowly export worker-bee here; but if there is enough evidence to charge the forwarder (packing list, invoice, b/l description of goods,coo) the blame has got to fall squarely on the management of said forwarder.

    When the folks “in charge” either fail to educate their untrained employees (cheaper than professional export clerks) at least on the red-flags, or fail to educate themselves about export compliance - there is no one to blame but themselves.

    The problem is two fold with 1) Startup mom-n-pop shops who are just looking for a quick buck and are too stupid to acquaint themselves with regulations. 2) mega forwarders who employ the plug-and-play model of staffing - fully automated with the workers untrained in anything but their specific narrow job function - and complete idiots in sales who know nothing about exporting at all.

    I’ll tell you this, riot gear would never have gotten past my desk on the first rfq unless the shipper was fully cognizant, upon my questioning, of the ITAR and BIS regs. But I’ve been doing this for 15 years now and was taught in the old school - and have the full support of management to question any and all red-flags that I see.

    Jurassic Forwarder

    Comment by Jean Poole — September 21, 2008 @ 7:48 am

  • I will clear all speculations by saying that,I did send 210 riot helmets and 210 bullet proof vests, and we filed the sed correctly,and that’s the only reason why they detected the shipment , when called by US customs Y brought it right back , it was never even unloaded from the vessel.
    Since I never acted as an exporter before I was not aware that only the helmets need licence, the agent for the Merida Police in venezuela deposit all the money in my account to make the purchase, only becuase it was easier to do it that way;and without making any money I made the purchase on behalf of the customre. [The customer] [name deleted by Editor] knew that this was going to venezuela and they dod not mention enything to me either. Just wanted to make a sale. To my surprise they allowed the bullet proof vests to be sent with no licence and the helmets they told me to pply for the licence, so I did only to get an response a month later stating that helmets could not be sent to Venezuela , with or without licence. I bet you all knew that right ? well , why would they asked me to apply for a licence just to denied it a month or 2 later stating that licence was not required ? awhat about the bullet proof vest ? they do not require anything , if all this makes any sense at all to all of you, I am glad, because I cannot make much sense.

    Comment by Susana Olmo — October 10, 2008 @ 3:52 pm

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